April 2021
2021-2025
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• This presentation was prepared by Mizrahi Tefahot Bank Ltd (the “Bank”), in connection with the Bank’s new strategic plan for the years 2021-2025, as published today by the Bank (the “New Strategic Plan” and the “Presentation”, respectively).
• The information included in the Presentation is not exhaustive and does not include full information on the Bank and its operations or the risk factors involved in its activity, and does not substitute the information included in the annual, quarterly or immediate reports published by the Bank. For a full description of all that regards the Bank and its operations, as well as the risk factors which the Bank’s activity involves, kindly peruse the reports released to the public by the Bank, including the financial reports and immediate reports it has published.
• The information included in the Presentation is based, inter alia, on the information which was known to the Bank’s management at the time of the Presentation’s preparation, including public data and publications, which were not independently examined by the Bank’s management and for which the Bank is not responsible.
• The information included in the Presentation does not constitute an advice, a recommendation, an opinion or a proposal regarding an investment in any securities whatsoever.
• The New Strategic Plan is considered a plan which establishes the Bank’s targets for its duration, and it is not to be considered a forecast, an assessment or an evaluation in the matter of achieving said targets, and as such, by its very nature, the New Strategic Plan might not be realized.
• It is hereby clarified that the information and data in the Presentation which relate to some future date are considered targets and objectives which the Bank has set for itself within the New Strategic Plan, and as such, they might not be realized.
• The Board of Directors will monitor the implementation of the New Strategic Plan and may amend it, from time to time, as required, including as a result of changes to factors which might affect it.
• Without derogating from the generality of the above, insofar as the Presentation may include forward-looking information, as defined in the Securities Law, 5728-1968, this information is based on assumptions, facts and data (collectively: the “Assumptions”) as detailed in the New Strategic Plan, which might not be realized due to factors which are beyond the sole control of the Bank, consequently causing the New Strategic Plan to not be realized (in this matter, see slide 29 of the Presentation).
• To remove doubt, it is clarified that the Bank does not undertake to update the information included in the Presentation.• The Presentation does not constitute an offer for the purchase or sale of the Bank’s securities, or an invitation to receive such offers.
This document constitutes an English translation of a presentation, originally drafted and published in Hebrew. For legal purposes, it is clarified herein that while every effort was made to provide accurate information, this translation bears no legal status and the Bank shall not be held liable as to its accuracy and/or its contents.The original Hebrew text shall be regarded as the sole official text and readers are advised to consult it in all matters.
General Comments regarding Legal Responsibility
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The starting Point
2021-2025 UMTB’s Market Shares
3
As of 31.12.2020
UMTB is the third largest bank in Israel
Total Assets Credit to the Public Deposits from the Public
#3
Source: Financial reports of the five banking groups(1) In this presentation, "UMTB" - including Yahav Bank for Government Employees (“Yahav Bank”) and Union Bank of Israel Ltd (“Union Bank”), unless stated otherwise.
#3#3
2021-2025
UMTB is the largest retail bank in Israel. There is potential for expansion in consumer credit.
Total Credit to Retail (1) Mortgages (2) Consumer Credit (3) Retail Deposits (1)
#1
Source: Financial reports of the five banking groups, note on supervisory operating segments(1) Households segment and private banking segment(2) Housing loans in the households segment and private banking segment(3) Households segment and private banking segment, excluding housing loans
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Retail Activity - Market Shares
As of 31.12.2020
2021-2025
In recent years, UMTB increased its market share in the business segments. There is growth potential in all segments, particularly in credit to large and medium businesses.
Total Credit to Businesses
Credit to Small Businesses
Credit to Large Businesses and
Institutional Investors
#4
Source: Financial reports of the five banking groups, note on supervisory operating segments5
Business Activity - Market Shares
As of 31.12.2020
Credit to Medium Businesses
2021-2025Credit to the public in Israel -Portfolio Composition (1)
UMTB Four Banking Groups Average
UMTB has a unique credit composition, tilted towards households and carries a low risk profile, which enables expansion of the business portfolio.
Households commercial
11%
Households mortgages
64%
Business25%
Households commercial
13%
Households mortgages
31%
Business55%
Source: Financial reports of the five banking groups, note on supervisory operating segments1) According to supervisory operating segments in Israel:Households commercial – households segment and private banking segment, excluding housing loansHouseholds mortgages - Housing loansBusinesses - Small business, medium business, large business and institution investors segments
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As of 31.12.2020
2021-2025
On average, over time, UMTB achieves the best efficiency ratio in the Israeli banking
system (4)
UMTB presents a high profit per position compared to the
average of peers
The number of employees at UMTB is low compared to
the banking system average
UMTB has reached a high number of branches compared to peers.A widespread branch network serves UMTB's human service
strategy
Operational Efficiency
Average Efficiency Ratio(1)
2016-2020Profit per Position
2016-2020(2) (NIS thousand)
Number of Position2020 (3)
Branch Network2020 (4)
Source: Financial reports of the five banking groups for the years 2016-2020(1) Total operating and other expenses to total operating and financing revenues before expenses with respect to credit losses(2) The average net profit during the period relative to the average total positions during the period(3) Average number of positions in 2020(4) Number of branches in Israel as of December 31, 2020. UMTB presented excluding Union(5) The average efficiency ratio in the four competing banking groups in the years 2016-2020: Leumi - 59.6%, Poalim - 63.3%, First International - 67.3%, Discount - 68.2%5
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UMTB Average of the4 banking groups
UMTB Average of the4 banking groups
UMTB Average of the4 banking groups
UMTB Average of the4 banking groups
2021-2025 Return on Equity
Average ROE2016-2020
ROE Development
Over time, on average, UMTB achieves the best ROE in the Israeli banking system (2)
(1)
Source: Financial reports of the five banking groups1) UMTB's net ROE in 2018 was affected by a provision due to the US Department of Justice investigation. Excluding this effect, and taking into account provisions for bonuses in line with the level of profitability from current operations, and the tax expenses derived from these, the ROE in 2018 was 11.6%.2) The average ROE in 2016-2020 at the four competing banking groups: FIBI - 9.0%; Leumi - 8.8%; Discount - 7.7%; Poalim - 6.4%
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UMTB Average of the 4 banking groups UMTB Average of the 4 banking groups
2021-2025 Plans for the Future
Along recent years, UMTB set ambitious goals and met them.
Now is the time for a new challenging plan, which will allow the Bank to optimally withstand the changes in the banking system and the business environment.
This plan aims to continue the Bank’s success, through accelerated organic and inorganic growth simultaneously, while strengthening the technological and operational infrastructure and cultivating the organizational culture in the Bank.
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10
The New Strategic Plan
2021-2025
Leveraging of the merger with Union Bank to
create Operational and
Business synergy
Adjusting the operational
model to the challenges of
future banking and improving
operational efficiency
Positioning UMTB as a
major player in Business Banking
Establishing the group’s
leadership among
households through organic
growth in all segments
The New Strategic Plan Pillars
Personal, human banking supported by
advanced digital technology
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2021-2025
Establishing Real Investment activities as a supplementing suit to
accelerate business activities
Leveraging Union Bank merger as a platform for rapid growth in business
sector activities
Leading large and complex transactions -Project Finance
Enhancing the Business Banking Focus of UMTB's international branches in London and L.A.
Establishing UMTB’s position as a leading
custodian and servicer of financial assets
Leveraging UMTB’s participation in State Guaranteed funds for
growth in the Small and Medium business segment
Positioning UMTB as a Major Player in Business Banking - targets and supporting steps
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2021-2025 Business Segments - Market Share Targets
Business Credit in Israel – Market Share (1) Deposits from Businesses in Israel –
Market Share (3)
≈18%
16.8%
2025F
≈15%
11.8%
2025F
The strategic plan aims towards achieving a market share of approx. 15% in business
credit in Israel (2)
The strategic plan aims towards achieving a market share of approx. 18% in business
deposits in Israel (4)
Source: Financial reports of the five banking groups, note on supervisory operating segments(1) Including the following segments: Small businesses, medium businesses, large businesses and institutional investors.(2) Assuming an average annual growth rate of business credit in Israel: UMTB - approx. 8%; the five banking groups - approx. 3%(3) Including the following segments: Small businesses, medium businesses, large businesses.(4) Assuming an average annual growth rate of businesses deposits in Israel: UMTB - approx. 5%; the five banking groups - approx. 3%
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2021-2025
Maintaining UMTB's leading position in the mortgage
market through innovation of products and processes
Establishing a unique Consumer Credit
Products Desk
Retail segmentation: Increasing activities
among target segments
Leveraging UMTB's strength in the mortgage
market to increase synergy with commercial activities
Leveraging Yahav Bank’s unique position to further increase of the household
segment market share
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Continue to Lead in Retail Bankingtargets and supporting steps
2021-2025
Credit to retail in Israel - Market Share (1)
≈34%32.9%
2025F
Retail deposits in Israel - Market Share (3)
≈23%
20.7%
2025F
The strategic plan aims towards achieving a market share of approx. 34% in Credit to
retail in Israel (2)
The strategic plan aims towards achieving a market share of approx. 23% in retail
deposits in Israel (4)
Source: Financial reports of the five banking groups, note on supervisory operating segments(1) The households segment and private banking segment(2) Assuming an average annual growth rate of the credit to retail in Israel: UMTB - approx. 6%; the five banking groups - approx. 5%(3) The households segment and private banking segment(4) Assuming an average annual growth rate of retail deposits in Israel: UMTB - approx. 6%; the five banking groups - approx. 4%
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Retail Banking - Market Share Targets
2021-2025
a multi-channel approach which maintains service continuity and
optimally combines between human and digital channels
A unique and different service experience: human service by a banker, available also Digitally, according to the client’s choice
and needs
Personal value propositions in all
channels adjusted for specific clients needs
Simplifying and optimizing banking processes
through digitalization of the client's interface
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Personal, human banking supported by advanced digital technology –targets and supporting steps
MakeProgressand stayhuman
2021-2025
Shifting and concentrating the Bank’s headquarters at a Central Campus in Lod to
increase operational and functional efficiency
A continuation of the voluntary early
retirement program
Automation of banking operation and optimization
of the work environment
Adjusting branches structure to Future Banking while
optimizing real estate space
A performance-based rewards and incentives
program
Leveraging the merger with Union Bank to achieve operational
synergy and extracting advantages of scale
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Adjusting the Operational Model to the Challenges of Future Banking and Improving Operational Efficiency -targets and supporting steps
2021-2025
Operational Synergy steps
• Branch merger and unification of headquarter functions at the two banks
• Optimization of human resources
• Completing the IT agreement period with Bank Leumi and a transition to UMTB’s IT systems
Operational Synergy targets
Branch network Synergy Rate:80%-75%
Operating Expenses Synergy Rate:
70%-60%
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Leveraging Union Bank Merger to Create Operational and Business Synergy
2021-2025Bank Objectives - Achieving the Advantages Embedded in the Merger with Union Bank
Increasing ROE as a result of utilizing
business and operational synergies
A step up in market shares of business and
retail banking
Upgrading the group’s competitiveness
power
Spreading business risk along a more diversified credit
portfolio
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Climbing to Success Together
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The New Strategic Plan Targets
2021-2025 Strategic Plan Targets
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• Market share growth in the various segments of activity
• Continuous improvement of operational efficiency while maintaining capital efficiency
• Consistent growth in the group’s profitability
• A stable, double-digit ROE, increasing over time
• Increasing dividend to investors
2021-2025
7,882 7,306
6,889
6,000 5,640
4,279 3,988 3,838 3,611
3,299
2025F2024F2023F2022F2021F
The Bank’s growth engines and the merger with Union Bank are aimed towards increasing the Bank’s income at an average annual rate of approx. 8% (nonlinear), alongside control over the expenses increase at an average annual rate of approx. 5% (nonlinear)
Union BankMerger
10.2%60%
8.5%64%
11.9%55%
9.5%54%
ROE
Efficiency Ratio
14%≈50%>
(1)
10.2%58%
(2)New Plan’s Targets
(2)
(1) Operating expenses excluding the effect of the US Department of Justice investigation.(2)UMTB's net ROE in 2018 was affected by a provision due to the US Department of Justice investigation. Excluding this effect, and taking into account provisions for bonuses in line with the level of profitability from current operations, and the tax expenses derived from these, the ROE in 2018 was 11.6% and the efficiency ratio was 57.2%.
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Profitability and Return on Equity Targets (NIS Million)
ExpensesIncome (excld. deferred credit balance)
2021-2025
The strategic plan aims towards achieving ROE of up to 14% throughout the plan’s years, even under the assumption that the Bank of Israel’s interest rate remains between 0% and 0.1%
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Return on Equity Target
2021-2025
The strategic plan assumptions with respect to the anticipated levels of inflation and the Bank of Israel’s interest rate are conservative. If these parameters increase compared to their current level,
ROE may rise above 14%
Increase in interest rate and inflation environment
Without an increase in interest rate
2025F2024F2023F 2022F 2021F
4%
%
.5%
BoI interest rate Approx. 1%
Inflation – around the middle of BoIrange
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ROE Development - Possible Effect of an Increase in Interest Rate and Inflation Environment
2021-2025 Market Share Targets
Credit to the Public – Market Share Deposits from the Public – Market Share
The strategic plan aims towards achieving a market share of approx.
24% in credit to the public (1)
The strategic plan aims towards achieving a market share of approx.
20% in deposits from the public (2)
≈20%18.5%
2025F
≈24%
21.9%
2025F
25Source: Financial reports of the five banking groups(1) Assuming an average annual growth rate of the credit to the public : UMTB - approx. 6%, the five banking groups - approx. 4%(2) Assuming an average annual growth rate of the deposits from the public : UMTB - approx. 5%, the five banking groups - approx. 4%
2021-2025
• Following the Corona Crisis and according to the instructions of Proper Conduct of Banking Business Directive no. 250 (the “Temporary Directive”), in April 2020, the Bank’s Board of Directors decided to abstain from dividend distributions, for as long as the Temporary Directive remains in effect.
• Accordingly, after the expiration of the Temporary Directive, the Bank plans to continue acting in accordance with the existing policy of distributing dividend at a rate of up to 40% of the net profit attributed to shareholders
• UMTB’s Board of Directors will monitor the execution of the New Strategic Plan, in order to examine the possibility of changing the Bank’s current dividend policy – increasing the dividend that will be distributed out of the net profit attributed to the shareholders to a rate of up to 50% with the completion of the merger with Union Bank, subject to the approval of the Supervisor of Banks
• As part of the dividend policy, and as a distribution measure, the Bank will also examine a share buyback program
Dividend Distribution Policy
Dividend distributed from 2016 onwards (NIS million)
26(1) The dividend policy is subject to the Bank's compliance with the ratio of tier 1 capital to risk weighted assets, as required by the Supervisor of Banks' directives, and maintaining proper safety buffers.(2) According to the updated Temporary Directive, it is in effect until September 30, 2021.(3) "Distribution" under the dividend policy (both dividend distribution and share buyback) are subject to the instructions of the law, including the Supervisor of Banks' directives.
2021-2025 Main Targets Summary
Due to accelerated growth in banking activities, the target is to increase UMTB’s market shares:Credit to the public: Approx. 24%Deposits from the public: Approx. 20%
Growth
Due to the growth in activities, the target is to achieve An increasing double-digit ROE of up to 14% throughout the plan’s duration, even under the assumption that the Bank of Israel’s interest rate remains between 0% and 0.1%
ProfitabilityThe Board of Directors will monitor the execution of the New Strategic Plan, in order to examine the possibility of increasing the dividend that will be distributed out of net profit attributed to shareholders to a rate of up to 50% with the completion of the merger with Union Bank, subject to the approval of the Supervisor of Banks
Increase Dividend (1)
Due to a high level of operational efficiency and the expected advantages of scale following the merger with Union Bank, the goal is to achieve an efficiency ratio below 50% in 2025
Efficiency
27(1) The updated dividend policy is subject to the Bank's compliance with the ratio of tier 1 capital to risk weighted assets, as required by the Supervisor of Banks' directives, and maintaining proper safety buffers.
2021-2025
The better performance of UMTB reflects investors’ trust: UMTB’s stock presents excess performance over the Banks Index over time
UMTB's stock (MZTF) Vs. the Banks' Index, 100 basis = end of 2016
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UMTB’s Stock
Bank’s IndexMZTF
2021-2025Risk Factors that are Not Under the Group’s Control and May Influence the Group's Growth Path
Risk Factors The Assumption The Risk
Regulatory risks
• Changes in legislation including regulatory orders that will change the business environment in Israel are not expected
• Consumer regulation in the household sector and small businesses sector could effect the scope of the Bank’s activities
• Banking regulation which would make capital adequacy and risk asset requirements stricter could hurt the Bank’s capital planning and profitability growth
Geo political /pandemic risks
• Geo political situation is not expected to change in a way that will harm the business environment
• An increase in the number of vaccine recipients will successfully eradicate the pandemic on a global and local scale
• Deterioration of the geo – political situation may result in a local recession
• The isolation of Israel may damage the business environment• Repeated waves of illness throughout the world and in Israel could
cause limitations on movement and economic activity
Monetary conditions in Israel
• The interest rate in Israel will remain in its current level• Inflation annual rate of up to 1.0%
• Zero, or negative, interest and inflation level may harm the Bank’s revenues
Real activity in Israel
• Stable economic environment – domestic average annual growth in the coming years of 3%
• A moderation of the global real activity growth rate, inter alia due to the extended impact of the Corona Crisis, may cause low demand for local exports and hurt private consumption in Israel
• As a result of the global economic situation, the Israeli market may get into a recession, and this in turn will influence the business environment
Exogenous changes which are outside the Bank’s control may affect the group’s growth path
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